June 23, 2013

Managing Expectations for DiCristina

This week, the Second Circuit Court of Appeals heard oral arguments in the DiCristina poker case. The DOJ is challenging a federal district court decision which found that the Illegal Gambling Business Act (IGBA) did not apply to poker because poker is a game of skill and the IGBA only applies to games of chance. Poker media guru "Diamond Flush" posted an excellent summary of the arguments, which by all accounts went very well for the pro-poker side.

PokerNews published highlights of a discussion with PPA litigation director Patrick "Skallagrim" Fleming, which is well worth a read. Unfortunately, PokerNews dropped the ball on a couple of major legal issues:

A Circuit Court ruling that IGBA doesn't include poker would be a big victory for the legality of poker. As it's already been determined that The Wire Act doesn't apply to poker, the IGBA is the last federal law the DOJ interprets as making poker illegal and was at the center of the Black Friday indictments. Other charges of money laundering and violating the Unlawful Internet Gambling Enforcement Act were dependent on operating a poker business being unlawful under the IGBA.

....

The case is sort of a freeroll for poker. If the DOJ wins, it will be able to continue interpreting the IGBA to include poker as it has been. If DiCristina wins, the DOJ won't have any legal standing against poker on a federal level. There also seems to be very little chance that the court would overrule Judge Weinstein's finding that poker is a game of skill since it doesn't affect the appeal.

There are two significant errors here, which are somewhat interrelated. First, the money laundering and UIGEA charges in the Black Friday indictments were not solely predicated on the IGBA violation. Instead, the indictments were based on violations of both federal law and New York state gambling laws. Certainly having the IGBA found inapplicable to online poker would undermine the Black Friday charges, but a pro-poker decision in DiCristina would not negate the UIGEA and money laundering charges.

Second, and more significantly, it is simply untrue that "the IGBA is the last federal law the DOJ interprets as making poker illegal" and that a victory in DiCristina means "the DOJ won't have any legal standing against poker on a federal level." Of course, the UIGEA still prevents the transmission of money to fund online poker sites operating in violation of state law, and most states have laws which classify poker as gambling for purposes of gaming regulations. More to the point, however, is that the Travel Act—a breathtakingly broad statute targeted at criminal enterprises—very much remains in play. As I wrote when analyzing the federal district court ruling in DiCistina:

The [DiCristina] decision only interpreted the IGBA. There are other federal statutes that could still be used by federal prosecutors against businesses offering poker, most notably the Travel Act. Unlike the IGBA which contained its own definition of "gambling", the Travel Act simply relies on a violation of a state gambling law to establish the predicate offense. Also, note that the Travel Act prohibits use of "the mail or any facility in interstate commerce" to "distribute the proceeds of any unlawful activity" or "otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity". This arguably could mean that merely mailing checks, promotional materials, or awards to players could be a violation of the Travel Act. So far federal prosecutors have not used the Travel Act in any poker-related prosecutions (at least not to my knowledge), but that might change if they lose the IGBA as a tool because of this decision.

My words turned out to be prophetic (though my prophesy wasn't any more challenging than predicting that LeBron James would win multiple NBA titles). A mere three weeks after the district court decision in DiCristina was issued, the DOJ amended their Black Friday civil forfeiture complaint against PokerStars, Full Tilt Poker, Ultimate Bet, and various business entities and individuals associated with those sites to include a Travel Act violation as a basis for forfeiture of poker-related assets. So, although it's unclear where PokerNews was getting its legal information on this point, PokerNews' coverage was unquestionably inaccurate on a significant legal point.

Now, why does it matter if PokerNews got this legal point wrong? The biggest issue is that this kind of misinformation feeds into the poker community's collective misunderstanding of applicable law and raises unrealistic expectations, in particular an impression that a favorable appellate ruling will clear the way for legalized online poker on a national basis. If the Second Circuit affirms the district court's decision—and I certainly hope that it does so—the effect on online poker will almost certainly be rather modest. As I wrote in my previous analysis of the DiCristina district court decision:

Even if the [DiCristina] decision is affirmed on appeal, its impact on the poker legalization fight is likely to be minimal. In many states, whether poker is a game of skill is utterly irrelevant as poker is explicitly regulated as gambling. In other states where poker's status is not defined by statute, courts have already ruled that poker is gambling, and those courts are unlikely to reverse course after having decided the issue. The decision probably has little application to other federal gambling statutes because the decision is based on the IGBA's particular definition of "gambling". ... Most likely, the decision will ultimately have only symbolic value.

Now, I don't want to leave the impression that DiCristina is not important; it is unquestionably a significant case. In fact, if the Second Circuit affirms the district court's ruling, then the DiCristina case will have significance both in removing poker from the ambit of another federal statute, and in being the first appellate court decision finding poker to be a game of skill. Nonetheless, at the end of the day, even a win in DiCristina will have little discernible impact on the effort to legalize poker. [FN1]. That's a fight that will need to be waged on a state-by-state basis, at least for the time being.

[FN1] As I previously discussed, one potential major winner from a DiCristina win in the appellate court is PokerStars:

Because the decision is from a different court, it does not change the pending DOJ Back Friday criminal or civil forfeiture cases other than to make it marginally easier for the remaining defendants to leverage a better plea bargain or settlement because the DOJ's IGBA and associated money laundering charges are now in a somewhat weaker position. The Black Friday cases are ultimately more about the banking and financial shenanigans of those involved than the underlying poker businesses themselves. But the decision certainly strengthens the argument to be made by PokerStars to state gaming regulators that merely running an online poker business did not violate federal law. Even if the decision is reversed on appeal, PokerStars could still argue that if a respected federal judge thought that poker was not regulated by the IGBA, then they certainly had a good faith belief they were not violating the IGBA. Of course, there would still be the matter of PokerStars allegedly violating state gambling laws, the UIGEA, federal money laundering laws, and federal banking laws. But if the applicability of the IGBA and the Wire Act can now be called into question, it becomes easier to raise doubts about some of the other laws in the mix.

Unfortunately, appellate courts rarely move quickly. A decision will likely take three to six months to be issued. If so, then PokerStars will be denied an opportunity to rely on a potentially favorable appellate court decision as New Jersey considers PokerStars' application for a gaming license.